"The least expensive kilowatt, is the one not used."

- Jacob Goldman

On April 14, 2011 Tennessee’s TVA announced a monumental shift from
coal fired electric utility plants to Cleantech. To prepare for this
conversion, Tennessee industrial and warehouse industrial property owners
should be utilizing Section 179 D EPAct tax incentives to get their buildings
in fiscal and physical shape for solar P.V. This article 1) presents the tax
opportunities, 2) provides the details of the recent TVA announcement, and 3)
describes the Cleantech opportunity with the large Memphis and Nashville
warehouse and industrial building sector.

The Section 179D EPAct Tax Opportunities

Pursuant to Section 179D of EPAct and its underlying ASHRAE (American
Society of Heating Refrigeration and Air Conditioning) building energy code,
commercial buildings are eligible for energy efficiency tax deductions of up to
$1.80 per square foot. If a building’s energy reducing investment
doesn’t qualify for the full $1.80 per square foot deduction, then
deductions are available for any of the three major sub-systems, including:

1. Lighting

2. HVAC (Heating, Ventilation and Air Conditioning).

3. The building envelope.

Each component can qualify for up to 60 cents per square foot in EPAct tax
deductions. The building envelope is anything on the perimeter of the building
that touches the outside world including roof, walls, windows, doors, the
foundation and related insulation layers.

Alternative Energy Tax Credits and Grants

There are multiple 30% or 10% tax credits available for a variety of
alternative energy measures with varying credit termination dates. For example,
the 30% solar tax credit and 30% fuel cell credit expires January 1st 2017 and
the 10% Combined Power tax credit also expires January 1st, 2014. The 30%
closed loop and open loop biomass credit expires January 1st, 2014.

All alternative measures that are eligible for the 30% and 10% tax credits
are also eligible for equivalent cash grants for the three years staring
January 1st 2009 and ending December 31st 2011.

The EPA’s National Enforcement Initiative

The EPA’s National Enforcement Initiative has sought to increase
compliance with the Clean Air Act. To date, 22 settlements have been reached
within the coal-fired plants sector, the most recent of which occurred with the
Tennessee Valley Authority. This agreement in many ways represents the most
sweeping changes to pollution reduction and energy efficiency in the United
States.

Highlights of the agreement include the following:

The TVA has agreed to fund $350 million for environmental projects. Of this
money, $240 million will go toward TVA-run energy efficiency projects with
another $60 million to be divided amongst Tennessee and neighboring states.

TVA-run projects will include a Smart Energy Communities project that will
focus on energy efficiency in low-income communities, retrofitting housing with
cost-effective energy-efficient technologies. TVA will also dedicate $40
million of its funding to hybrid electric charging stations and $8 million to a
clean diesel and electric vehicle project for public transportation systems.

The TVA has also agreed to invest $3 to $5 billion on new and upgraded
pollution controls, which the EPA estimates will prevent 3,000 premature
deaths, 2,000 heart attacks and 21,000 cases of asthma each year, an annual
savings of $27 billion.

Finally, the TVA also agreed to close 18 of its oldest coal-fired power
plants and retrofit eleven others for reduced air emissions. Here is a table of
the plants which are closing:

Tennessee Valley Authority

Coal Fired Plant Closures

For the eleven plants which must be retrofitted, nitrogen oxide emissions
must be reduced by 48,000 tons per year (69%) and sulfur dioxide by 208,000
tons per year (67%).

Electric Cars

Planning departments in Memphis and nearby towns are identifying locations
for 71 Level II charging stations for electric cars. Such planning is part of
the six-state EV project, deploying electric car charge infrastructure with
help from the DOE and will dovetail nicely with the TVA's funding.

Tennessee's involvement in the initiative is of particular benefit to
Memphis-based Nissan. Owners of the Nissan Leaf will receive residential
charges for their cars as part of the EV project.

Additive Cleantech Investment

In May, Tennessee Governor Phil Bredesen called for further investment in
the green sector. Bresden’s initiative would use $62.5 million in federal
stimulus funds to launch the two-part Volunteer State Solar Initiative. The
first part would fund science and industry that result in cheaper and more
efficient uses of energy statewide.

The second part of the proposal is the West Tennessee Solar Farm near
Brownsville, which would generate five megawatts of electricity and serve as a
model for further solar-related investments and research

This proposal suggests that Tennessee’s commitment to the green sector
may not simply be a reaction to increased federal compliance efforts.

Tennessee Warehouse Solar Tax Planning

Solar P.V. rooftop systems are used to generate electricity at warehouses.
Warehouses typically make ideal solar installation candidates since they often
have large, unobstructed flat roofs. Large roofs enable large P.V. systems that
generate more electricity. Solar P.V. installations are entitled to 30% tax
credit or now for the first time a 30% grant . When using either the credit or
the grant, normally five year MACRS tax deprecation is available. For the
period September 9 through December 31st, 2011 100% bonus tax depreciation is
available. For 2010, 50% bonus depreciation is available. Often tax equity
partners will be willing to make the investment for a rooftop warehouse solar
installation and enter into a power purchase agreement where the warehouse
operator post-installation will purchase its electricity at an agreed price for
a fixed period of time, usually 15 to 20 years. The tax equity partner will use
a combination of the power purchase agreement annual revenue, the tax credit or
grant, utility rebates if available, green tag emission payments (called
renewable energy certificates or REC’s) and net metering electricity
payments for selling the excess power back to the grid to generate an
acceptable economic return. With a power purchase agreement, a warehouse is
essentially renting its roof as an alternate energy electrical generator.

Large Memphis Warehouse Concentration Suitable for Solar

The Memphis area has one of the largest warehouse concentrations in the
country. The area is very popular for large distribution centers because it is
centrally located and is world re known as the headquarters and major
operations center for Federal Express.

Conclusion

The seismic shift in Tennessee from coal to Cleantech is truly
remarkable.

With one of the nation’s largest warehouse and industrial building
portfolios, the state is particularly well situated for large scale solar P.V.
installation. Understanding the large tax incentives available for support in
the coal-to-Cleantech conversion should act to accelerate this desirable
result.